Assessing Regulatory Risk

William F Hederman and Lee-Ken Choo

Energy systems, including production, use, trading, transmission, storage and distribution, have transformed significantly over the last decade. So have the regulatory systems relevant to the energy systems.

This updated chapter builds on the previous examination of regulatory risks affecting energy systems to:

• provide a historical perspective drawing heavily from the previous edition of this chapter,¹¹See Managing Energy Price Risk (2004). adding insights on the evolution of the regulatory environment over the last decade;

• provide an analytic framework for addressing regulatory risk; risk practitioners can use this framework as a guide, along with other relevant resources, to develop practical solutions even if future circumstances deviate from those anticipated today; and

• provide our perspectives on several developments that may bring important opportunities and risks to energy market participants and probe selected points to illustrate how the reader could apply the analytical framework for practical use.

OVERVIEW OF US ENERGY REGULATION

In the 2004 edition of this chapter, the focus was on regulation by the US Federal Energy Regulatory